Category Archives: Asymmetric Demand

Are we honestly supposed to believe it was a co-ordinated denial-of-service attack that brought down a demonstration application on Sun’s much-touted pay-as-you-go Grid service on the day of its launch this week?

Phil suggests that two explanations are equally plausible – one in terms of security and one in terms of unanticipated levels of demand – since these two explanations might both generate pretty much the same outcome.

In a symmetric world, there is a clear distinction between genuine customers and hostile attackers – and the task of security is to tell them apart and keep them apart. We can easily separate security from marketing, because there is no interference between these two activities. We can install perimeter-based security, which prevents bad people from accessing our services.

In an asymmetric world, this distinction (and the deconfliction between marketing and security) breaks down. This asymmetry is one of the key drivers for the current interest in deperimeterization, as promoted by the Jericho Forum.

by Richard Veryard
John Hagel posts some interesting comments about Disney, Pixar and Jobs. He is sceptical about the strategic contribution that Steve Jobs may be able to make to Disney.

large media companies need to figure out how to become relationship companies

media products need to become platforms

the future of large media companies hinges upon the mindset and skills required to build loosely coupled products

(and focusing on) creating networks to get better faster

This is essentially an argument for a relational strategy in response to asymmetric demand. Hagel argues that “scale and scope economies in the media business are migrating away from products”. This may be true for most media companies, but many people may wonder whether it really applies to Disney/Pixar? How asymmetric is the demand for the latest cartoon film? Surely these cartoons are always going to remain mass market products, long after other media products and services have been fragmented and customized?

Of course it’s not as simple as that. Consider the increasing complexity of the cartoon whole-product. Besides the film itself, we are urged to consume the music, the computer games, the ringtones, the toys, even the books. Cartoon characters are printed on breakfast cereal packets, and given away by fast food outlets. Thus there is a considerable ecosystem of commercial exploitation. One of the strategic issues for Disney/Pixar is the delicate balance between narrow control of the brand (ultimately how the cartoon characters are experienced around the world) and broad encouragement of creativity and innovation within the brand.

This is perhaps not so very different from the challenges that Steve Jobs faced at Apple. John Hagel is critical of Apple, and attributes Apple’s commercial failure to Jobs’ thinking of the computer as a product rather than as a platform. So how do we interpret Apple’s recent success with iPod and iTunes? Surely these are successful platforms, not just products. Look at the explosion of new practices (such as podcasting) that these platforms support.

But there is a critical difference between the product/platform shift (which is a response to the second asymmetry) and the positional/relational shift (which is a response to the third asymmetry). Can Disney / Pixar / Apple ignore the third asymmetry – and for how long?

One line of discussion relates to privacy. Some commentators are praising Google for resisting the US Government’s demands for data, when its competitors have apparently complied.

But there is another important consideration, which appears relevant to Google’s position. There is an huge gap (asymmetry) between the information requirement (as stated by the DoJ) and the data on Google’s database. (See especially Danny Sullivan’s post at SearchEngineWatch.)

So the DoJ is hoping to solve a complex problem with very large amounts of data? Does it really make sense for the DoJ to copy the raw data from Google onto its own processors? In a service-oriented grid-enabled world, it would seem to make more sense (and raise fewer privacy concerns as well) for the DoJ to collaborate with Google (and its competitors) – to compose intelligent and relevant analytical enquiries that can be run by Google (as a service, albeit commandeered by the Government) to help solve the DoJ’s problem.

Of course Google is an interested party in the outcome of the DoJ’s deliberations, but does engaging it as a trusted partner in the analysis really increase its ability to bias the outcome in a self-interested way? And if it provides knowledge and metadata services rather than raw data, this might mitigate the threat to its position as a trusted custodian of personal search records?

by Richard Veryard
Who is going to want the kind of user-defined policies I talked about in the podcast (link to soundfile, transcript extract)? Is it just the higher-end type of customer, as Ron suggests?

Hypothesis One: The better-off customers have the more complex requirements. Their financial arrangements are more subtle, their consumer electronics are more sophisticated, and there is much greater scope for interoperability.

Hypothesis Two: The technically literate consumers are most able to articulate the more complex requirements. They are more willing to experiment with the available options, and to learn to express their requirements in an appropriate policy language. In consumer electronics, they are the ones who know the difference between an Ethernet cable and a USB port, and how to tweak the firewall.

Hypothesis Three: The lead times are getting shorter. Even if it is currently the better off and technically literate consumers who are the early adopters of this complexity, service providers should anticipate the possible mass adoption of some aspects of this complexity within a fairly short timescale.

Hypothesis Four: Although the better-off and technically literate customers may be the ones who currently understand and express these complex requirements, that doesn’t mean that the rest of the customers don’t have these requirements. Everyone needs security; and the less money you have to start with, the more you suffer if someone steals a hundred dollars from your account.

Hypothesis Five. Where end-users are not able or willing to engage with the technical necessities (such as writing their own policy statements in some technical mark-up language), there will be intermediate services that will do this. For example, financial advisers may start to see their role as helping the client to orchestrate and manage a complex set of financial services from a range of service providers, instead of simply helping to select financial products. There are also opportunities for self-help groups and communities to emerge, where the complexity is managed collectively at group level, rather than at the individual level.

Hypothesis Six. Ultimately, the complexity is supported by a platform of composable services providing the right balance of flexibility and efficiency. The strategic question now becomes one of platform dominance. (The banks may be privately thinking about this question, but I haven’t seen much evidence of it yet.)

Hypothesis Seven: In the short-term, banks might be tempted to focus on the higher-end type of customer if they really were the most profitable. But there may not be enough of them to cover the costs of supporting them effectively. A more strategic reason for focusing on the higher-end type of customer might be because of innovation. But there may be just as much innovation (and greater social benefit, as well as reasonable long-term profitability) from supporting a “long tail” of lower-end customers, either directly or through appropriate communities and intermediaries.

[Richard] Let me talk about the relationship I have with my bank. As a typical banking customer, I get a very simple set of services from my bank, and quite frankly it’s not really what I want, but all the other banks offer me pretty much the same services, so I don’t really have much choice. What I would like from my bank would be for me to define my own data model, which would be more complex and more fitted to what I need than the data model the bank gives me. What I would like is to be able to define my own policies on the bank account – give me a policy language, I’ll code my own policies, I’m happy to do that – and let the bank execute them. But no, the bank’s not interested in doing that, the bank can make money just giving me a standard one-size-fits-all bank account, and so they’re not going to do that, and they’re probably not going to do that for some years to come. But other industries are starting to respond to that kind of asymmetric demand.

[Ron] That sounds really interesting about the bank, but I can’t even imagine or conceive of how a bank could possibly allow me to define my own policies, or the kind of data that’s going to be related to those policies. Can you give me an example of something that might work that way?

[Richard] Yes, let me talk about security policies. At the moment, my bank gives me a simple choice: either everybody with my password can access my internet bank account, or my bank account simply isn’t available over the internet. And so it’s a very crude binary: either it’s open or it’s closed. Now what I would like is to define much more precise security policies on my account, that says for example I can take money out of my account to these specific destinations up to these amounts of money, but if I want to pay vast amounts of money to an overseas company that I’ve never dealt with before, I do not want that to happen over the internet, I’m quite happy to go into the branch and do that over the counter, and sign all the paper that I need to give myself the extra security. I could write those policies over and above the policies the bank itself has, and the bank would be able to execute my security policies in composition with its own security policies, and that would give me greater security and me greater control over my account, without taking anything away from the bank. And if everybody had their own security policies it would make it a lot harder to have mass attacks on bank accounts, which would make everybody safer. And so there seems to be a win-win-win all round if banks were able to provide just simple kinds of user-defined policies of that kind.

[Ron] Okay, I can imagine how if that kind of thing were possible, that a bank who was willing to offer that might attract the kind of customers that would result in more profitability. I would imagine that might appeal to a higher-end type of customer than a typical customer that maybe doesn’t care that much about the bank’s security.

[Richard] But you see with SOA, the technology is all there to do that. Technologically, that’s very easy to do now. It’s purely a question of whether the bank is willing to manage that additional complexity.

For further discussion, see Banking Services and User-Defined Policies 2, in which I discuss who is going to want these kind of user-defined policies, and what are the strategic implications for banks and other service providers?

by Richard Veryard
On the Longtail blog, Chris Anderson produces some data that he interprets as evidence for The Decade the Blockbuster Died. Many comments (including mine) suggest alternative interpretations of this evidence.

An album (or film or other entertainment product) may achieve massive volumes when it is first released, or it may become a perennial best-seller. In theory, there are two routes to long-term success, so that a slowburning quality product might achieve parity with a flash-in-the-pan popular hit. But in practice, products are deleted from the catalogue or become effectively unavailable – either because the sales volumes falls below some threshold defined by economies of scale, or because of some arbitrary decision by the record company (such as a dispute with the artist). In the former case, such thresholds assume an economics based on there being a symmetry between the supply model and the levels of demand directly addressable by it.

So the statistics cited on the Longtail blog don’t reflect the “pure” behaviour of the market but reveal the distortions caused by the behaviour of the record companies. This is an example of large companies imposing arbitrary restrictions to suppress the longtail.

In recent years, the internet has apparently provided opportunities for record companies to exploit the back catalogue more effectively, but there are still many classic records and films that are not available in the latest formats. Pundits or rigged elections produce lists of the 100 greatest products in various categories (special thanks to Channel Four) and this promotes sales of these older products. But the market remains distorted, and the evidence for the longtail remains patchy.

Similar considerations apply in the pharmaceutical industry. But in the same way, a business model reliant on blockbuster drugs is looking increasingly problematic, while the industry has not yet made a satisfactory transition to the longtail.

The strategic challenges in these (and other) industries can be understood in terms of meeting the challenge of asymmetries of demand, and the need, therefore, for a business model that can use a micro-segmentation of demand to address the needs of customers one-by-one.

by Richard Veryard
Charlie, Picking up on your question about the SUV and health club examples in your last blog The Impact of Differences in Context, you base your comments on seeing Asymmetry 1 in there being a diversity of technologies, Asymmetry 2 in there being a diversity of business models, and Asymmetry 3 in there being a diversity of contexts of use. This is not quite right, because for us Asymmetry 1 is about managing the relation to a diversity of uses of technology, and Asymmetry 2 is about managing the relation to a diversity of solutions.

The SUV example.
An SUV is a vehicle that incorporates a compromise (design trade-off) between lots of conflicting technologies in how they can be used. The relationship to demand is one where the supplier offers a product that supports particular forms of use by the customer. It is the nature of this relationship to demand that makes it an illustration of managing the first asymmetry.

In an ideal world, my family would have a selection of cars for use in different contexts – long-distance versus short distance, carload of muddy children versus business trip, camping equipment versus week’s groceries, perhaps an open-top car for the summer. In practice, we have a single car that has to be capable of being used for as many different purposes as possible. As it happens, we have a Land Rover. This is good enough for most purposes, although there are undoubtedly better and cheaper cars for each purpose taken separately.

The point, however, is that it is we who manage the second asymmetry by deciding how we are going to use the car in order to provide ourselves with a solution that is fit-for-purpose. This contrasts with the last time I needed to move some furniture, which necessitated hiring a van from a rental company. Here it was a solution I bought – not the van itself. It also contrasts with the solution to keeping my car road-worthy, which I buy from my local garage (at vast expense!). These last two are illustrations of managing Asymmetry 2 – what distinguishes them is again the nature of the relationship to demand, and not the business model per se.

In my view, there are basically two business models used by car manufacturers, both of which are managing Asymmetry 1. One is to be the best-in-class or best-value-in-class for a highly specialized use – e.g. sports cars (Ferrari versus Porsche) or town cars (Smart versus Mini). The other is to possess a decent cluster of features so that it can be used as a reasonable compromise solution by a sufficient number of people who want a multi-purpose car. While there are indeed some Land Rover and Jeep models that are specialized to off-road purposes, most civilian Land Rover and Jeep sales are for the mixed-use models.

The cluster of features is a mixed benefit. Much of the time I am bearing the cost of features that I am not using. 4-wheel drive incurs a higher cost of ownership than 2-wheel drive. This is economically inefficient, and I only bear this economic cost because the transaction cost of switching cars would be much greater. This is the issue that you address in your paper on Value-driven architecture: architecture determines the ways in which the trade-offs between a cluster of features can benefit the user.

When I change my lifestyle (for example, having children), my way of extracting value from the available solutions changes. Perhaps I make less use of the off-road features, and higher use of the safety features. But if I have chosen a car that is strongly adapted to my childless lifestyle, the chances are that this car is less well-adapted to my altered lifestyle. This may mean that I face a significant value deficit – linked with the limited adaptability of my car, and the cost and inconvenience of changing it. This change in my lifestyle is certainly a change in me and my family as a context of use, but again, it is again for me to manage the asymmetry that it opens up.

The Health Club example.
Rather than investing in my own gym, the health club enables me to buy a number of solutions. The way it manages the relation to these solutions is a good illustration of managing the second asymmetry. Most members only use a subset of the facilities, so they are paying for solutions they never use. Indeed, some of the facilities supporting these solutions may be very infrequently used, and so represent an economic burden on all members. So one of the challenges facing the Health Club is how to maintain an alignment between the facilities available and the solutions that it is offering in response to the demands of its members.

But given that a large city has some number of health clubs, each with a different set of facilities being offered to different sets of members, how might we end up with an efficient distribution of facilities? The two obvious answers – central planning and market forces – both appear to “solve” this problem in a different way, the former by rationing facilities, and the latter by leaving it to the business to manage the trade-off between risk and reward resulting from their particular way of offering solutions in response to members’ demands. For the former to work, the form of demand has to be entirely static. As demand becomes more dynamic, the latter doesn’t work either because it is using feedback loops that are responding to aggregate rather than to particular changes in demand, and can therefore never catch up with the full dynamic complexity of the situation.

So what I’m focusing on here is the tension between economic efficiency (adaptation) and sustainable (dynamic) adaptability. In the SUV example, the car manufacturer is not itself managing the adaptability, leaving this to the customer; while in the health club example it is. In neither case, however, is the business addressing the third asymmetry, which is left wholly to the customer’s own ingenuity.

How radical is this critique?
If we try to envision a business that uses cars but in which the third asymmetry begins to be managed through dynamic collaborative composition within a particular user’s context-of-use, it would have the ability to respond to individual demands in the same way (for example) that the NetJets business seeks to satisfy unique travel profiles for its client businesses. Thus what we are particularly keen on is finding ways in which some added value can be released for a business by tackling some aspects of the third asymmetry incrementally.

For example, can we use SOA to tackle some of the interoperability issues between the software supplied with the vehicle and the software supplied with various third-party accessories (e.g. satellite navigation), and can this be put under the control of the car owner? Can the car owner program some of the behavior or performance of the car, perhaps using some suitable domain-specific language or programming interface? (For example, I might want to program in some speed constraints before I lend the car to my teenage son. Indeed, the insurance company may insist upon it.)

There are some significant opportunities for SOA to deliver additional value and adaptability to the end-user. The obstacles are not primarily technological – although there are a few fascinating technical challenges – but organizational. Suppliers generally don’t have the mindset to view these opportunities favorably – they appear to incur a significant cost and risk, not to mention complexity, without delivering much supply-side value.
You write: “A supplier wants to be prepared for whatever the consumers might need in whatever context they find themselves in.” In our work with clients, we are experiencing some ambivalence (at best) about this ‘want’. Is it an idle ‘want’, which suppliers are happy to subscribe to as long as it is easy? Or is it a serious and committed ‘want’? And where is it located in the organization?

Our answer is that it is located at the edges of the organization! This is why “power-to-the-edge” is so important – as an organizational change first and foremost, but with a significant contribution to be made by SOA and related technologies to give the organization the agility it needs to respond cost-effectively at the edge.next in this thread

by Philip Boxer
In a recent interview, the chief executive of GE pointed out that in order to create propositions that their customers would value more than their competitors’ propositions, GE had to know more than their competitors about their customers’ needs. Suppliers can no longer just compete by providing the best product or best solution to a defined requirement. They must enter the customer’s world, and understand it as a context-of-use that conditions the nature of the demands that the customer makes.

Suppliers are used to managing the risks associated with satisfying the forms of customer demand that they can predict. And suppliers expect their customers to define their requirements before committing to underwriting the risks they will carry in satisfying those requirements. In this way suppliers can maintain a symmetrical relationship between their capabilities and their clients’ demands.

But now we are seeing the emergence of business situations where demand has to be acknowledged as asymmetric; this means that the customer is always wanting ‘more’ than the supplier can provide. This ‘more’ constitutes a value deficit that companies such as GE cannot afford to ignore.

How much of this value deficit is going to be addressed by the supplier? This question has to involve balancing the risks and rewards on both sides of the relationship. How, then, to find this balance?

To answer this question, new kinds of risk have to be considered on the demand-side in addition to those on the supply-side, and a wider understanding of the supply-demand relationship has to be established.